Redwood Trust, Inc. (NYSE:RWT; "Redwood", the "Company"), a
leader in expanding access to housing for homebuyers and renters,
today reported its financial results for the quarter ended
September 30, 2024.
Key Q3 2024 Financial Results and Metrics
- GAAP book value per common share was $8.74 at September 30,
2024, relative to $8.73 per share at June 30, 2024
- Economic return on book value of 2.1% for the third quarter and
6.8% year to date 2024(1)
- GAAP net income available to common stockholders of $13.1
million or $0.09 per basic and diluted common share
- Non-GAAP Earnings Available for Distribution ("EAD") of $25.2
million or $0.18 per basic common share(2)
- Recourse leverage ratio of 2.5x at September 30, 2024, relative
to 2.1x at June 30, 2024(3)
- Declared and paid a regular quarterly dividend of $0.17 per
common share, a 6.25% increase from the second quarter 2024
Q3 2024 Operational Business Highlights
Residential Consumer Mortgage
Banking
- Generated 30% annualized GAAP Return on Capital ("ROC") and
non-GAAP EAD ROC
- Locked $2.2 billion of loans,(4) compared to $2.7 billion in
the second quarter of 2024
- Achieved gross margins well in excess of our historical target
range of 75bps to 100bps, driven by hedge outperformance and spread
tightening on securitization execution during the quarter
- Fixed-rate bulk volume from banks increased 1.8x from
Q2'24
- Lock volume split evenly between bulk and flow, while we also
saw a 6% increase in locks from independent mortgage banks
("IMBs")
- Refinance activity represented 27% of quarterly flow volume, up
from 12% in the second quarter 2024
- Distributed $1.5 billion of jumbo loans across three
securitizations
Residential Investor Mortgage
Banking
- Generated 45% and 58% annualized GAAP ROC and non-GAAP EAD ROC,
respectively, on $50 million of capital
- Funded $458 million of loans (65% bridge and 35% term),
effectively flat from $459 million in the second quarter of 2024
- Bridge loan volume increased 24% QoQ, including a record
quarter of fundings for single asset bridge ("SAB") loans
- Term loan production declined as many borrowers awaited clarity
from September's Federal Reserve interest rate decision
- Continued to deepen distribution channels, selling $288 million
of loans through whole loan sales and sales to joint ventures
("JVs") and an additional $63 million to existing bridge loan
securitizations
Investment Portfolio
- Accretively deployed approximately $157 million of capital into
internally sourced and third-party investments, the largest amount
since the third quarter of 2022
- Re-performing loan ("RPL") and jumbo securities saw improvement
in 90 day+ delinquency rates at 6.9% and 0.2%, respectively; 90
day+ delinquency rates for our combined Residential Investor
portfolio increased to 6.5% from 5.4% at June 30, 2024, partially
offset by resolutions(5)
- Payoffs in the Residential Investor portfolio increased 19% in
the third quarter to $380 million, including $226 million of bridge
loans
- Investment Portfolio recourse leverage ratio remained low at
0.7x at September 30, 2024
Financing / Corporate Highlights
- Unrestricted cash and cash equivalents of $254 million and
unencumbered assets of approximately $300 million at September 30,
2024
- Total excess warehouse financing capacity of $4.8 billion at
September 30, 2024
- Successfully renewed or established financing facilities with
key counterparties for $1.7 billion of capacity, including one
additional line to support our JV with CPP Investments and another
to support our Residential Consumer platform
- Closed two non-marginable financing transactions backed by CAFL
securities and subordinate and interest-only SEMT securities,
unlocking capital for redeployment
- Retired outstanding convertible debt maturing July 2024 with
cash on hand; remaining convertible debt outstanding at September
30, 2024 totaled $364 million
Q4 2024 Highlights to Date(7)
- Distributed $1.5 billion of Residential Consumer jumbo loans
through SEMT® securitizations of 30-year fixed rate jumbo loans
($0.4 billion), seasoned hybrid adjustable-rate loans ("ARMs")
($0.4 billion) and whole loan sales ($0.7 billion)(8)
- Distributed over $250 million of Residential Investor loans
through whole loan sales and sales to JVs
- Launched an expanded set of ARM guidelines within our
Residential Consumer platform
- Completed an opportunistic $40 million reopening of our 7.75%
convertible notes due 2027; predominant use of proceeds was to
repurchase convertible notes due 2025, effectively extending the
maturity of our convertible debt outstanding
"Our operating platforms delivered their strongest performance
in over three years, underscoring our deepening partnerships,
sustained product demand and enhanced distribution capabilities,”
said Christopher Abate, Chief Executive Officer of Redwood Trust.
"As evidenced by the recent increase to our common dividend, our
results reflect continued progress in growing earnings and
deploying capital accretively."
Continued Abate, “As we progress through the final quarter of
the year, we are excited to embrace this new chapter for our
Company, with several favorable tailwinds propelling us forward. A
more accommodative monetary policy and increasing clarity in bank
regulations underscore the opportunity we see for Redwood. We are
witnessing increased demand for our products in the non-Agency
market and are well-positioned to leverage our leadership,
expertise, and innovative solutions to meet this growing need.”
_____________________
- Economic return on book value is based on the period change in
GAAP book value per common share plus dividends declared per common
share in the period.
- Earnings available for distribution is a non-GAAP measure. See
Non-GAAP Disclosures section that follows for additional
information on this measure.
- Recourse leverage ratio is defined as recourse debt at Redwood
divided by tangible stockholders' equity. Recourse debt excludes
$14.3 billion of consolidated securitization debt (ABS issued and
servicer advance financing), other liabilities and other debt that
is non-recourse to Redwood, and tangible stockholders' equity
excludes $44.6 million of goodwill and intangible assets.
- Lock volume represents loans identified for purchase from loan
sellers. Lock volume does not account for potential fallout from
pipeline that typically occurs through the lending process.
- Re-performing loan ("RPL") and jumbo securities delinquency
rate calculations are weighted by notional balances of loans
collateralizing each of our securities investments. Bridge loan and
CAFL securities delinquency rates are calculated as BPL term loans
in our consolidated CAFL securitizations, loans held at JVs,
unsecuritized bridge loans held for investment, and bridge and term
loans held for sale with a delinquent payment greater than 90 days,
divided by the total notional balance of loans in consolidated CAFL
securitizations, loans held at JVs, unsecuritized bridge loans held
for investment, and bridge and term loans held for sale.
Calculation excludes third-party purchased bridge loans.
- Secured recourse leverage ratio for our Investment Portfolio is
defined as secured recourse debt financing our investment portfolio
assets divided by capital allocated to our investment
portfolio.
- Represents Q4'24 activity through October 29, 2024 unless
otherwise noted.
- Includes securitizations and sales that have priced but not yet
closed as of October 29, 2024.
Third Quarter 2024 Redwood Review and Supplemental Tables
Available Online
A further discussion of Redwood's business and financial results
is included in the third quarter 2024 Shareholder Letter and
Redwood Review which are available under "Financial Info" within
the Investor Relations section of the Company’s website at
redwoodtrust.com/investor-relations. Additional supplemental
financial tables can also be found within this section of the
Company's website.
Conference Call and Webcast
Redwood will host an earnings call today, October 30, 2024, at
5:00 p.m. Eastern Time / 2:00 p.m. Pacific Time to discuss its
third quarter 2024 financial results. The number to dial in order
to listen to the conference call is 1-877-423-9813 in the U.S. and
Canada. International callers must dial 1-201-689-8573. A replay of
the call will be available through midnight on Wednesday, November
13, 2024, and can be accessed by dialing 1-844-512-2921 in the U.S.
and Canada or 1-412-317-6671 internationally and entering access
code #13749054.
The conference call will be webcast live in listen-only mode
through the News & Events section of Redwood’s Investor
Relations website at
https://www.redwoodtrust.com/investor-relations/news-events/events.
To listen to the webcast, please go to Redwood's website at least
15 minutes before the call to register and to download and install
any needed audio software. An audio replay of the call will also be
available on Redwood's website following the call. Redwood plans to
file its Quarterly Report on Form 10-Q with the Securities and
Exchange Commission by Thursday, November 7, 2024, and also make it
available on Redwood’s website.
About Redwood
Redwood Trust, Inc. (NYSE: RWT) is a specialty finance company
focused on several distinct areas of housing credit where we
provide liquidity to growing segments of the U.S. housing market
not well served by government programs. We deliver customized
housing credit investments to a diverse mix of investors through
our best-in-class securitization platforms, whole-loan distribution
activities, and our publicly traded shares. We operate our business
in three segments: Residential Consumer Mortgage Banking,
Residential Investor Mortgage Banking and Investment Portfolio.
Through RWT Horizons®, our venture investing initiative, we invest
in early-stage companies that have a direct nexus to our operating
platforms. Additionally, through Aspire, our home equity investment
(“HEI”) platform, we directly originate HEI to homeowners. Our goal
is to provide attractive returns to shareholders through a stable
and growing stream of earnings and dividends, capital appreciation,
and a commitment to technological innovation that facilitates
risk-minded scale. Redwood Trust is internally managed and
structured as a real estate investment trust ("REIT") for tax
purposes. For more information about Redwood, please visit our
website at www.redwoodtrust.com or connect with us on LinkedIn.
Cautionary Statement; Forward-Looking Statements:
This press release and the related conference call contain
forward-looking statements within the meaning of the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995,
including the expected timing for the filing of Redwood's Quarterly
Report on Form 10-Q. Forward-looking statements involve numerous
risks and uncertainties. Redwood's actual results may differ from
Redwood's beliefs, expectations, estimates, and projections and,
consequently, you should not rely on these forward-looking
statements as predictions of future events. Forward-looking
statements are not historical in nature and can be identified by
words such as “anticipate,” “estimate,” “will,” “should,” “expect,”
“believe,” “intend,” “seek,” “plan” and similar expressions or
their negative forms, or by references to strategy, plans,
opportunities, or intentions. These forward-looking statements are
subject to risks and uncertainties, including, among other things,
those described in our Annual Report on Form 10-K for the year
ended December 31, 2023 under the caption “Risk Factors”. Other
risks, uncertainties, and factors that could cause actual results
to differ materially from those projected may be described from
time to time in reports we file with the Securities and Exchange
Commission, including reports on Forms 10-Q and 8-K. We undertake
no obligation to update or revise any forward-looking statements,
whether as a result of new information, future events, or
otherwise.
REDWOOD TRUST, INC.
($ in millions, except per share data)
Three Months Ended
9/30/2024
6/30/2024
Financial
Performance
Net income per diluted common share
$
0.09
$
0.10
Net income per basic common share
$
0.09
$
0.10
EAD per basic common share (non-GAAP)
$
0.18
$
0.13
Return on Common Equity ("ROE")
(annualized)
4.5
%
4.8
%
EAD Return on Common Equity ("EAD ROE")
(annualized, non-GAAP)
8.7
%
6.5
%
Book Value per Common Share
$
8.74
$
8.73
Dividend per Common Share
$
0.17
$
0.16
Economic Return on Book Value (1)
2.1
%
1.3
%
Recourse Leverage Ratio (2)
2.5x
2.1x
Operating
Metrics
Residential Investor Loans
Term fundings
$
159
$
218
Bridge fundings
299
241
Term sold
207
253
Bridge sold
81
162
Residential Consumer Loans
Locks
$
2,226
$
2,662
Purchases
2,024
1,902
Securitized
1,528
1,424
Sold
39
6
(1)
Economic return on book value is based on
the periodic change in GAAP book value per common share plus
dividends declared per common share during the period.
(2)
Recourse leverage ratio is defined as
recourse debt at Redwood divided by tangible stockholders' equity.
At September 30, 2024, and June 30, 2024, recourse debt excluded
$14.3 billion and $12.8 billion, respectively, of consolidated
securitization debt (ABS issued and servicer advance financing),
other liabilities and other debt that is non-recourse to Redwood,
and tangible stockholders' equity excluded $45 million and $47
million, respectively, of goodwill and intangible assets.
REDWOOD TRUST, INC.
Consolidated
Income Statements (1)
Three Months Ended
($ in millions, except share and per share
data)
9/30/24
6/30/24
3/31/24
12/31/23
9/30/23
Net Interest Income From:
Investment portfolio
$
32.7
$
29.9
$
29.6
$
30.8
$
31.1
Residential consumer mortgage banking
9.5
11.2
6.0
0.7
1.2
Residential investor mortgage banking
1.8
1.5
0.9
0.9
0.7
Corporate/other
(18.6
)
(17.3
)
(12.3
)
(12.3
)
(12.7
)
Net Interest Income
$
25.5
$
25.3
$
24.2
$
20.1
$
20.4
Non-interest income (loss)
Residential consumer mortgage banking
activities, net
26.7
6.2
7.8
8.4
9.0
Residential investor mortgage banking
activities, net
12.9
12.7
6.7
6.3
10.5
Investment fair value changes, net
(12.2
)
1.1
21.8
15.2
(41.7
)
HEI income, net
10.7
15.8
9.0
11.7
10.3
Other income, net
6.0
6.3
4.5
1.8
2.3
Realized gains, net
0.2
—
0.4
0.6
0.1
Total non-interest income (loss), net
$
44.2
$
42.2
$
50.3
$
44.0
$
(9.6
)
General and administrative expenses
(36.0
)
(33.3
)
(34.6
)
(32.2
)
(29.7
)
Portfolio management costs
(6.4
)
(4.9
)
(3.6
)
(4.3
)
(3.7
)
Loan acquisition costs
(3.2
)
(3.7
)
(2.2
)
(2.6
)
(1.9
)
Other expenses
(2.2
)
(5.2
)
(3.4
)
(2.9
)
(4.6
)
(Provision for) benefit from income
taxes
(7.1
)
(4.9
)
(0.5
)
(1.0
)
(1.7
)
Net income (loss)
$
14.8
$
15.5
$
30.3
$
21.0
$
(30.8
)
Dividends on preferred stock
(1.8
)
(1.8
)
(1.8
)
(1.8
)
(1.8
)
Net income (loss) available (related) to
common stockholders
$
13.1
$
13.8
$
28.5
$
19.3
$
(32.6
)
Weighted average basic common shares
(thousands)
132,218
132,116
131,570
121,927
115,466
Weighted average diluted common shares
(thousands) (2)
132,358
132,124
131,570
122,474
115,466
Earnings (loss) per basic common share
$
0.09
$
0.10
$
0.21
$
0.15
$
(0.29
)
Earnings (loss) per diluted common
share
$
0.09
$
0.10
$
0.21
$
0.15
$
(0.29
)
Regular dividends declared per common
share
$
0.17
$
0.16
$
0.16
$
0.16
$
0.16
(1)
Certain totals may not foot due to
rounding.
(2)
Actual shares outstanding (in thousands)
at September 30, 2024, June 30, 2024, December 31,
2023 and September 30, 2023 were 132,237, 132,216, 131,871,
131,486, and 118,504, respectively.
Analysis of Income Statement - Changes from Second Quarter
2024 to Third Quarter 2024
- Net interest income increased from the second quarter due to
accretive capital deployment, partially offset by a full quarter of
expense on recently issued unsecured notes and lower interest
income from residential consumer mortgage banking.
- Income from Residential Consumer Mortgage Banking increased
from the second quarter, driven by a combination of spread
tightening on securitization execution throughout the quarter and
hedge outperformance. Gain on sale margins increased and were above
our historic target range of 75 – 100 basis points.
- Income from Residential Investor Mortgage Banking activities
increased slightly from the second quarter on relatively consistent
volume and margins relative to the second quarter.
- Fair value changes on our Investment Portfolio in the third
quarter primarily reflected improved credit performance and spread
tightening on our SEMT and SLST securities, offset by incremental
negative fair value changes on our bridge loans.
- HEI income, net decreased in the third quarter, as actual and
projected trends in home price appreciation slowed, resulting in
lower fair market value changes compared to the second quarter
2024.
- General and administrative (G&A) expenses increased from
the second quarter primarily as a result of higher
performance-based variable and equity compensation expenses
relative to the second quarter given improved year-to-date earnings
performance.
- Our provision for income taxes in the third quarter increased
as a result of improved results from both our Residential Consumer
and Residential Investor Mortgage Banking platforms.
REDWOOD TRUST, INC.
Consolidated Balance Sheets (1)
($ in millions, except share and per share
data)
9/30/24
6/30/24
3/31/24
12/31/23
9/30/23
Residential Consumer Loans
$
11,157
$
9,210
$
7,617
$
7,051
$
5,847
Residential Investor Loans
4,746
4,880
5,182
5,220
5,249
Consolidated Agency multifamily loans
426
422
423
425
421
Real estate securities
334
264
212
128
129
Home equity investments (HEI)
590
574
561
550
431
Other investments
342
350
337
344
340
Cash and cash equivalents
254
276
275
293
204
Other assets
579
515
451
493
399
Total assets
$
18,427
$
16,491
$
15,058
$
14,504
$
13,021
Asset-backed securities issued, net
$
13,020
$
11,556
$
10,628
$
9,812
$
8,392
Debt obligations, net
3,801
3,415
2,959
3,239
3,306
Other liabilities
383
300
247
251
217
Total liabilities
$
17,204
$
15,270
$
13,834
$
13,302
$
11,915
Stockholders' equity
1,223
1,221
1,224
1,203
1,106
Total liabilities and equity
$
18,427
$
16,491
$
15,058
$
14,504
$
13,021
Common shares outstanding at period end
(thousands)
132,237
132,216
131,871
131,486
118,504
GAAP book value per common share
$
8.74
$
8.73
$
8.78
$
8.64
$
8.77
(1)
Certain totals may not foot due to
rounding.
Non-GAAP Disclosures
Reconciliation of
GAAP Net Income Available to Common Stockholders to non-GAAP
EAD(1)(2)
Three Months Ended
($ in millions, except per share data)
9/30/24
6/30/24
GAAP Net income available to common
stockholders
$
13.1
$
13.8
Adjustments:
Investment fair value changes, net(3)
12.2
(1.1
)
Realized (gains)/losses, net(4)
(0.2
)
—
Acquisition related expenses(5)
2.2
2.2
Tax effect of adjustments(6)
(2.1
)
3.7
Earnings available for distribution
(non-GAAP)
$
25.2
$
18.6
Earnings per basic common share (GAAP)
$
0.09
$
0.10
EAD per basic common share (non-GAAP)
$
0.18
$
0.13
GAAP Return on common equity
(annualized)
4.5
%
4.8
%
EAD Return on common equity (non-GAAP,
annualized)(7)
8.7
%
6.5
%
- Certain totals may not foot due to rounding.
- EAD and EAD ROE are non-GAAP measures derived from GAAP Net
income (loss) available (related) to common stockholders and GAAP
Return on common equity ("GAAP ROE" or "ROE"), respectively. EAD is
defined as: GAAP net income (loss) available (related) to common
stockholders adjusted to (i) exclude investment fair value changes,
net; (ii) exclude realized gains and losses; (iii) exclude
acquisition related expenses; (iv) exclude certain organizational
restructuring charges (as applicable); and (v) adjust for the
hypothetical income taxes associated with these adjustments. EAD
ROE is defined as EAD divided by average common equity. We believe
EAD and EAD ROE provide supplemental information to assist
management and investors in analyzing the Company’s results of
operations and help facilitate comparisons to industry peers.
Management also believes that EAD and EAD ROE are metrics that can
supplement its analysis of the Company’s ability to pay dividends,
by providing an indication of the current income generating
capacity of the Company's business operations as of the quarter
being presented. EAD and EAD ROE should not be utilized in
isolation, nor should they be considered as an alternative to GAAP
net income (loss) available (related) to common stockholders, GAAP
ROE or other measurements of results of operations computed in
accordance with GAAP or for federal income tax purposes.
- Investment fair value changes, net includes all amounts within
that same line item on our consolidated statements of income, which
primarily represents both realized and unrealized gains and losses
on our investments (excluding HEI) and associated hedges. As noted
above, realized and unrealized gains and losses on our HEI
investments are reflected in a new line item on our consolidated
income statements titled "HEI income, net".
- Realized (gains)/losses, net includes all amounts within that
line item on our consolidated statements of income.
- Acquisition related expenses include transaction costs paid to
third parties, as applicable, and the ongoing amortization of
intangible assets related to the Riverbend, CoreVest and 5 Arches
acquisitions.
- Tax effect of adjustments represents the hypothetical income
taxes associated with all adjustments used to calculate EAD.
- EAD ROE is calculated by dividing EAD by average common equity
for each respective period.
Non-GAAP Disclosures (Continued)
Reconciliation of
GAAP Net Contribution to non-GAAP EAD
Net Contribution
by Mortgage Banking Segment(1)(2)
Three Months Ended
Three Months Ended
9/30/24
6/30/24
($ in millions)
Residential Consumer Mortgage
Banking
Residential Investor Mortgage
Banking
Residential Consumer Mortgage
Banking
Residential Investor Mortgage
Banking
GAAP Net contribution
$
22.8
$
5.7
$
9.9
$
0.6
Adjustments:
Acquisition related expenses(3)
—
2.2
—
2.2
Tax effect of adjustments(4)
—
(0.6
)
—
(0.6
)
EAD Net contribution (non-GAAP)
$
22.8
$
7.3
$
9.9
$
2.2
Capital utilized (average for period)
$
307
$
50
$
255
$
67
Return on capital (GAAP)
30
%
45
%
16
%
4
%
EAD Net Contribution return on capital
(non-GAAP)(5)
30
%
58
%
16
%
13
%
- Certain totals may not foot due to rounding.
- EAD Net contribution and EAD Net contribution ROC are non-GAAP
measures derived from GAAP Net contribution and GAAP Return on
capital ("GAAP ROC" or "ROC"), respectively. GAAP ROC is defined
as: GAAP Net contribution by segment adjusted to (i) exclude
investment fair value changes, net (as applicable); (ii) exclude
realized gains and losses (as applicable); (iii) exclude
acquisition related expenses; (iv) exclude certain organizational
restructuring charges (as applicable); and (v) adjust for the
hypothetical income taxes associated with these adjustments. Each
of these adjustments to arrive at EAD Net contribution are the same
adjustments used to calculate EAD, as applicable to each segment
for which it is being calculated. EAD Net contribution ROC presents
a measure of profitability relative to the amount of capital
utilized in the operations of each segment during a period and is
calculated by dividing annualized non-GAAP EAD Net contribution by
the average capital utilized by the segment during the period.
Management utilizes these measures internally in analyzing each of
the Company’s business segments’ contribution to EAD. See prior
page for a further description of how management utilizes EAD and
why EAD may assist investors, as well as limitations related to
using EAD-based metrics. We caution that EAD Net contribution and
EAD Net contribution ROC should not be utilized in isolation, nor
should they be considered as alternatives to GAAP Net Contribution,
GAAP ROC or other measurements of results of operations computed in
accordance with GAAP.
- Acquisition related expenses include transaction costs paid to
third parties, as applicable, and the ongoing amortization of
intangible assets related to the Riverbend, CoreVest and 5 Arches
acquisitions.
- Tax effect of adjustments represents the hypothetical income
taxes associated with all adjustments used to calculate EAD.
- EAD ROC is calculated by dividing EAD by average capital
utilized for each respective period.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20241030023061/en/
Investor Relations Kaitlyn Mauritz Head of Investor Relations
Phone: 866-269-4976 Email: investorrelations@redwoodtrust.com
Redwood (NYSE:RWT)
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